The backlash against ESG investing is an opportunity for the industry to step back and reimagine what the sustainability movement is supposed to be, according to CCLA’s head of sustainability James Corah.
In an interview with PA Future, Corah describes how conflicts turned into opportunities early on in his career, how engaging on social themes can lead to a big impact for a smaller firm such as CCLA, and what the next iteration of responsible investment looks like.
Tell us about your background and how you came to be head of sustainability at CCLA?
I joined in 2010 after completing a PhD on how charities in particular manage their money in a way that – what I thought was – minimising the conflict between what they exist to do and the ‘evil businesses’ on the stockmarket they’re investing in.
Through that, CCLA was one of my case studies and I realised there are mission-driven organisations that are participating in financial markets to try and get the funding they need to carry on but are investing in businesses that don’t reflect their values. I thought at the time, that this was a conflict, but it became quite clear it was more of an opportunity to invest in companies and drive positive change. That’s driven the 14 years that I’ve been here because, in essence, what I love is the ability to be able to take a person or an organisation’s values, make them money through the investment markets, but also use that as the platform to actually encourage businesses to do better. I don’t think there’s any better place to be able to do that than at CCLA.
See also: CCLA’s Corah and Berens: Why ESG funds need to raise the bar for their investors
And what does your role involve as head of sustainability?
We have an amazing team of 11-12 people, which is hugely well resourced for an organisation of our size. Collectively we are responsible for three things: first is ESG integration. The CCLA approach is it should be based upon building a portfolio that absolutely performs – we’re not believers in sustainability from the perspective of only buying the leaders in the market as that leads to a smaller eligible universes, potential style biases, and doesn’t allow us to do the work I talked about [above] with taking businesses on a change journey.
Second, which is pretty unique to CCLA, is how we build portfolios that align with people’s mission, their values, etc. We recognise that we’re not the people who own the money, we’re managing someone else’s money, and therefore trying to make sure that their portfolios feel like an extension of them.
Third, most importantly, is active ownership – how do we deliver upon the potential for this vehicle to be a genuine force for change in the investment industry.
Because of who we are, where we’ve come from, and where we’re going, we have a licence, an authenticity and ability to do things that other groups aren’t. There’s this sense of responsibility of how can CCLA genuinely be a force of change in our industry, as well as the force of change in engagement with the companies that we’re investing in.
What do you think is the next iteration of responsible investment will look like?
Let’s address the backlash. I think it is ridiculous but, as a sector, we can’t pretend it’s not happening and we can’t pretend that there is probably something to it in parts.
If you strip ESG, sustainable values based or responsible investment back to what it truly is, it has to be what clients want, which is to make money and to make a difference.
What the backlash offers is an opportunity to do some soul searching – is the industry that we have built actually delivering upon those two things that people want?
I think for quite a lot of reasons we’ve built a sector for the sake of a sector; we’ve built ESG out into an investment style, which it never was meant to be. It was meant to be a movement of how do you use money to drive change. So the backlash should be an opportunity for us to take that step back to reimagine what really is the sustainability or ESG movement is supposed to be and focus back on that.
So how do you imagine that will look?
There’s been a massive fascination with what’s in a portfolio – this idea of building a style for the sake of style – what does your portfolio look like. We are talking more often than not in terms of sustainable investments in the portfolio that don’t make any difference when it comes to doing good. So, for me, I think the next version of this movement has to be a pivot back to thinking beyond the portfolio, a sense of recognising that your portfolio is the bit that drives your returns. But it’s also the platform on which change can really happen – going back to a sense of meaningful active ownership where you recognise the world is not in a sustainable place, and going back to building a portfolio that reflects the the world as it is, and then using engagement to make things better.
Do you mean engaging other companies that are not yet in portfolios?
Looking at the portfolios we have, a lot of the companies in them would not be in a ‘best in class’ sustainability, thematic type portfolio. There’s definitely a place for those funds, I don’t want to do them down because there are people who want to invest in companies that are already doing great things. This idea of building a portfolio of sustainable leaders is great if a client wants a clean portfolio but it’s not unleashing the power of our industry to be additional, its not letting our industry make things happen that wouldn’t have happened otherwise.
For me, that’s what an engagement approach is. If you can take a global, unsustainable business, and make it a little bit better, then you’ve made a change. And because these are the biggest businesses in the world, that’s going to have quite a tangible outcome in terms of the people that are affected or the environment.
Let’s get away from thinking about portfolio cleanliness to actually what the real impact that the funds are having – how have my assets made something happen that wouldn’t have happened otherwise?
I understand, but are there limits to this? PA Future recently covered a Reclaim Finance report that said there are passive funds labelled as ‘sustainable’ but have around 40% exposure to fossil fuels. Yes, they can be engaging but is it a stretch to call them ‘sustainable’?
My view is it is always better to have a portfolio that represents the real world and go out and make things better. But one of the things that has made me so angry about our industry is that ‘engagement’ has become a byword for greenwashing. It’s become ‘well don’t you worry about that holding, I’m engaging with them, I won’t tell you what I’m doing, and I won’t tell you what it’s achieving, but I’m telling you I’m engaging, therefore it’s okay’.
We have to be transparent on what the engagement is trying to achieve. The engagement shouldn’t be about due diligence or understanding companies a bit more, it genuinely should be about driving change. And when you take that idea your ‘Northstar’ of engagement is being how can I actually drive change, then there are going to be some companies in some sectors that just fundamentally cannot change. For us, that includes the oil and gas industry – we engaged with them and realised at this point in time, engagement is not going to deliver the scale of change at the speed that we need it to happen. While we would love to continue to have a crack at them, it’s not fair and not fitting with our ethos to invest in those businesses.
Let’s talk a bit more about CCLA approach to engagement, and there has been a big focus on mental health and modern slavery. How would you say this makes your engagement toolkit different?
I’ve talked about being additional in terms of driving change with companies and one of the luxuries we have is the ability to not follow the crowd.
If we just sign up to ClimateAction 100+, which we are a member of and where we do lead engagements, that’s not really additional because there’s always going to be asset managers and asset owners who are willing to lead those engagements whether we’re in it or not.
What we have is an ability to look at sectors and create an initiative to make sure we do new things. That’s where the mental health and modern slavery programmes came from.
Climate is now so established and even though we’re not on the right track in any way, shape, or form, there’s not a huge amount of extra that CCLA can make happen right now as asset manager of our size.
On the social issues, we recognises everyone was asking companies one or two questions, but they weren’t the same questions and they didn’t necessarily have power. Our ability to create initiatives like our mental health programme or modern slavery programmes is designed to create commonality across the sector so people are asking the same questions and make sure that we are being additional, and making change happen to companies.
Where has CCLA implemented change in a company through these engagement initiatives?
We can point quite clearly to the Mental Health Benchmark, where we have some of the world’s largest businesses, so the Amazons and the HSBCs of the world, developing new mental health policies and programmes they didn’t have before.
We have companies that we don’t invest in coming to us saying ‘we want to learn from CCLA’. In the 14 years I’ve been here, that’s an amazing shift as back then we were begging companies to talk to us – now they’re actually wanting to knock down our door and learn about this.
See also: CCLA on SDR: ‘There will be a degree of testing, and that takes time’
Let’s go back to your point on ESG becoming an investment style when it wasn’t ever meant to be. Where do you think we need to focus on education for advisers and clients?
That’s a really good point, and also ties into an initiative that we have called Advisor Action.
People today tend to have core portfolios and sustainable portfolios. And because of the way that’s developed, sustainable portfolios have come to be your thematic funds, or climate or water funds – there are many reasons why advisors would want to buy those because they are great to play a certain theme.
But are they the only ways to deliver that idea of getting returns and making change happen? If we look at where does the sector need to evolve to, it needs to slightly step away from the strict idea of sustainability investing, as being just investing in companies that are already sustainable, to ask how best can we make change happen.
